Generation Y (born between 1978 and 1999) are renowned for delaying their transition into adulthood. As a result they are attractive recipients of trust distributions due to their lower incomes. However, creating assets in the form of beneficiary loan accounts or unpaid entitlements is a risk that should be reviewed from a family law context.
In these circumstances the creation of an asset from an unpaid present entitlement exposes that asset to the financial risks of the beneficiary. In the family law context this asset may well be brought into the matrimonial pool of assets to be divided between a spouse beneficiary and his or her former partner.
Where there has been a history of trust distributions to a beneficiary, a court will regard such trust distributions as a financial resource of the beneficiary. This has consequences for the ultimate division of assets between the parties. However, even if there is no such history, the potential to receive trust distributions in certain circumstances is sufficient for the court to regard this as a financial resource.
This is particularly where the trustee or appointor of the trust are related to the beneficiary. In Essex and Essex a trust had been settled four years after the parties separated. The husband received no distributions and only managed the day to day affairs of the corporate trustee in his brother’s absence for about eighteen months. On these facts the Family Court found that there was compelling evidence that the husband would receive distributions from the S Trust and again control of the S Trust after the conclusion of the proceedings.
Given the importance of controlling actual or potential distributions in order to protect trust assets from exposure to a future claim from a former spouse, it may be desirable to review the pattern of distributions in existing trusts if there are any concerns about claims against particular beneficiaries.
The attraction of distributing income to generation Y beneficiaries who are delaying their transition to adulthood should be carefully considered and not seen simply as an opportunity to make distributions to low income earners.